Posts Tagged ‘economic effects’

Half-way through, Indian monsoon on course to be close to “normal”

July 31, 2015

Compared to “normal” the Indian monsoon has a large downside and a limited upside. It is thought that a “bad” monsoon (accumulated rainfall 20% less than normal) can depress GDP by 2 percentage points. A “good” monsoon (20% greater than normal) however can raise GDP by only about 1 percentage point since the benefits are capped by areas of local flooding. The monsoon lasts 4 months (June – September) but its indirect effects are felt all the way through to the start of the next monsoon. Agriculture contributes only 17% of India’s GDP directly but agriculture employs almost 65% of the Indian work-force.

Indian Economy

The immediate impact of a good monsoon is increased employment in rural areas (September – October) followed by increased rural consumption of consumer goods (October – December) and even sales of two-wheelers and tractors (November – March). Pesticide sales increase during the monsoon and again in the following pre-monsoon period. Fertiliser sales pick-up strongly in the pre-monsoon period following a good monsoon. The December – June period following a good monsoon is when rural “investments” are mainly made (machinery, equipment, construction, consumer goods). The indirect effects of agriculture on the services and manufacturing sectors are critical. However, even more important is the effect of a good monsoon on food price stability and general economic sentiment.

The current monsoon is now half-way through. June saw accumulated rainfall about 15% higher than normal while July has seen a shortfall of about 16%. For the 2 months the accumulated rainfall is now¬†just short of “normal”. Revised forecasts are for a small shortfall during August followed by some excess in September and for the whole period rainfall to be close to “normal”. Timing of rainfall is important but the rains have kept reasonably close to the expected time-line.

The potential downside of a “bad” monsoon seems to have evaporated. My conclusion is that India should see a strong growth period in the September 2015 – May 2016 period, as the Modi government’s sluggish reforms pick up some steam and as the seasonal effects of a near-normal¬†monsoon trickle through the economy.


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